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Earnings Preview: BP, Shell and Exxon

The companies all may report falling profits for the first time in five years.

October 22, 2007, 08:00 pm

NEW YORK -- It may be the first time in five years that major oil companies ExxonMobil Corp., Royal Dutch Shell Plc and BP Plc all see profit declines in their third quarter reports, as natural gas prices and earnings from making gasoline dropped, Bloomberg News reported.

ExxonMobil is estimated to report net income fell 8.3 percent to $9.6 billion, according to the average of analyst estimates compiled by Bloomberg. Shell's profit, excluding special items, is expected to drop 21 percent to $5.58 billion, Bloomberg News reported, citing the median analysts estimate. In addition, BP's earnings may fall 12 percent to $3.98 billion, according to the analysts cited by Bloomberg News.

During the quarter, natural gas prices fell 6.4 percent in the U.S., based on speculation that inventories would meet winter demands, while refining margins dropped 5.2 percent, due to a weakening gasoline demand at the end of the summer driving season, the report stated.

"This is not going to be a great set of results," Ivor Pether, manager of the equivalent of $17 billion at Royal London Asset Management, including $2 billion of BP and Shell shares, told Bloomberg News. "Despite the high oil price, gas pricing has been weak, production volumes are generally down and refining margins have fallen as well." Refining margins from turning crude oil into fuels, fell to $8.05 a barrel in the third quarter, from $8.49 in the year-ago period, Bloomberg News reported, citing data posted on BP's Web site.

"This is going to be a punishing quarter," Fadel Gheit, an analyst at Oppenheimer & Co., told Bloomberg News. "The question is, who is going to decline less and how bad will it be?"

Meanwhile, Shell CEO Jeroen van der Veer anticipates refinery profits will recover, Bloomberg News reported. Last month, the company announced plans to spend $7 billion to more than double the size of its Port Arthur refinery, making it the biggest in the nation, according to the report.